Even as they lowered their 2014 gross gaming revenue forecast from 22% to 13%, in a research note today, Citi analyst Anil Daswani and team re-iterated their bullish call on Macau and said recent headline news concerns are overblown and the Macau stocks are oversold.

The full smoking ban will only have a negligible impact on the mass market, because Chinese gamblers are serious gamers:

The government is not going to limit the size or the number of smoking rooms casinos can install in mass areas. However, gaming facilities are not allowed inside smoking rooms. In addition, the closed smoking rooms and the smoking areas in VIP rooms (including Premium Mass Rooms) together should not exceed 50% of the size of the total casino gaming area.

Given the installation of smoking rooms on mass floors, the full smoking ban on the
mass market will likely lead to an immaterial ~2% decline in mass GGR, based on
our smoking survey. Most Mainland Chinese players will not stop visiting Macau just because they are not allowed to smoke at the tables. Unlike the West, we believe players in the Macau casinos are not social gamblers but are serious players who are prepared to pay for some of the most expensive hotel rooms for the privilege to gamble in the only place gambling is legal in China.

The World Cup is unlikely to have as large an impact as in 2010, because most of the games are played in the middle of the night in China:

In 2010, there were a total of 35 matches (29 matches in the group stage and six in
the second stage) with kick-off times at 19:00 or 22:00 China Standard Time (CST),
due to the fact that South Africa is six hours behind Macau. These kick-off times
overlapped the peak hours in Macau casinos, which was probably the main driver
for the 20% MoM decline in GGR that year.

Brazil is the host of the World Cup this year and it is 11/12 hours behind Macau
(depending on the host cities). This means the match schedule is Asia-unfriendly,
with all 64 matches kicking off between 00:00 and 09:00 CST. This is why we
remain optimistic about June this year, as there is almost no overlap between
casino peak hours and World Cup matches.

As for a clampdown on UnionPay: If people want to gamble, they will find a way to pass the Great Wall and bring their funds to Macau:

Even if the Macau government decides to ban the use of Union Pay within the gaming area (as suggested by some news articles), we believe retailers in the nongaming areas will continue to be allowed to carry legitimate Union Pay terminals. For grind mass players, Union Pay makes it easier to bring cash to Macau, as players can make purchases using Union Pay in Macau and resell them a few minutes later to pawn shops (which is not illegal in Macau today). From our understanding and discussions with junkets, no VIP players from China would use Union Pay to bring cash to Macau for gambling (otherwise there is no need to use junkets in the first place). We also believe that most premium mass players have their own businesses that are set up outside of China and have access to foreign currencies. Therefore, only a small portion of premium mass players would have the difficulties in converting currency. In the unlikely scenario where Union Pay is completely banned, what grind mass players could do is to purchase some luxury goods (e.g. diamonds or watches) in China. They could then bring them across the border and resell them to pawn shops in Macau to get HKD.

Isis Wong at Credit Suisse chimed in as well today, saying the Macau stocks were oversold:

Given that the VIP segment now contributes 40% of the EBITDA, with the stocks falling 10% MTD, it is effectively pricing in a 25% decline in VIP earnings, impact), a magnitude comparable to the decline in 1H09 following the financial crisis. We believe the correction is excessive.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.